The Other Bitcoin Boom: Crypto Mining in Russia’s Shadow Territories

In a world where the Kremlin is increasingly isolated and fixated on foreign influence operations, there is a strong incentive to mine virgin Bitcoin for cross-border activities. As markets for Russia’s gas shrink, turning excess energy into electricity and then cryptocurrency is booming. This has been happening at scale in Russia’s ‘shadow territories’ – Transnistria, Donbas and Abkhazia – since 2018/19. Exploiting these legally indeterminate zones offers deniability and allows the plundering of Russian state gas and electricity resources. And, as is typical of post-Soviet Russia, private-sector players conduct covert activities for the state and enrich themselves at the same time. 

How to Turn Cheap Energy into Anonymous Money

The anonymity of Bitcoin is disputed by crypto adherents, who point out that the blockchain is trackable and therefore cryptocurrencies actually provide unprecedented transparency. While this is true to a certain extent, there are several ways to obscure the trail for nefarious purposes. These include using ‘mixers’ such as Tornado Cash to obscure blockchain links; using a dark web system known as ‘The Onion Router’; or simply buying offline Bitcoin ‘wallets’ from owners at a premium for cash. Mining new Bitcoins – the process by which new coins are minted – also provides a degree of protection because the tokens have no history at the point of their first transfer, thus denying data to investigators.

To mine new coins, the Bitcoin network requires computer processing power. As the system is decentralised, Bitcoin’s designers decided to incentivise the provision of computing capacity for this purpose. The incentive? The delivery of new Bitcoins to nodes that provide the processing power for the network’s transactions. ‘Bitcoin miners’ invest in ‘mining rigs’ – specialised servers – to perform these computations and generate new tokens as a quid pro quo. 

The key cost variable in Bitcoin mining is energy to power these servers, which is one of the reasons Russia’s shadow territories are an attractive location. Research by the industry portal nftevening.com from September 2024 shows that ‘Mining 1 Bitcoin in Ireland costs up to $321,112, while in Iran, miners pay just $1,324 – Over 240 times cheaper’. Even with Bitcoin at close to $100,000, many jurisdictions are uneconomic for Bitcoin mining. 

Transnistria, Donbas and Abkhazia do not feature in the top 10 cheapest locations for Bitcoin mining as they are all grey zones outside the control of sovereign governments. Moreover, the methods they employ to obtain electricity are not captured by surveys, which work off reported national pricing for electricity. Where the cost of electricity is in the region of zero and the territory in question is not internationally recognised, such research methods founder.

The Grey Zones

The ‘shadow territories’ of Transnistria, Donbas and Abkhazia – all of which are under Russian ‘protection’ – provide particular opportunities for actors aligned to the Kremlin to mine Bitcoin.

• Transnistria: Uses energy from the MGRES power station, which is fuelled by gas that is effectively provided for free by Gazprom. A tech park that has been established to draw in miners offers electricity at $0.043 per kWh.
• Donbas: Has used electricity from coal-fired stations since at least 2021, which in normal times would power heavy industry. Electricity stolen from the Zaporizhizhia Nuclear Power Plant may also be used. Human sources report that there is a mining centre at Donetsk Metals Plant and at least one more, both of which operate under protection from the Federal Security Service (FSB). 
• Abkhazia: Has used electricity from the Enguri hydroelectric plant on the border with Georgia, as well as imported Russian electricity, since as early as 2015/16. Electricity costs are as low as $0.005 per kWh. However, open source reports indicate that mining in both Abkhazia and Georgia proper has dropped off steeply since 2023.

Transnistria: A Perfect Bitcoin Mining Environment

Transnistria has access to free gas from Gazprom and substantial electrical generation capacity, which makes it a particularly attractive Bitcoin mining location.

The key elements in this are the unusual arrangements for both gas supply and energy generation between Moldova proper and Transnistria. Both territories receive Gazprom gas by pipeline, and for both the gas is billed via the Gazprom-Moldovagaz contract (Moldovagaz is 50% controlled by Gazprom). But while Moldova pays for its gas, Transnistria’s is nominally added to the circa $709 million debt of Moldovagas, a sum which is disputed and whose repayment prospects are modest and which is also disputed. 

Since Maia Sandu came to power as Moldova’s president in 2021 the country has reduced its dependence on this source. But what has not changed is that Transnistria’s gas is effectively free and is used to power the 2,500 MW MGRES power station. Moldova also relies on MGRES for around 80% of its electricity, illustrating the strange interdependency between the otherwise hostile entities. 

This free energy serves as a subsidy from Moscow to keep Transnistria’s obsolete, polluting and inefficient heavy industries in business; these include chemicals, steel and cement. It also allows for very cheap domestic gas, helping to shore up popular support for the local regime. 

The scale of this subsidy can be seen in the strikingly disproportionate gas consumption of the two entities, according to Moldovan government information supplied to the author: Transnistria (population 300,000) consumes circa 2 billion cubic metres (bcm)/year, while Moldova proper (population 2.5 million) consumes circa 1 bcm/year. At the point of delivery, Transnistria is receiving around 16 times as much gas per capita as Moldova. (This figure is, however, offset by the fact that some of Transnistria’s gas generates electricity in the MGRES plant, which is then sold to Moldova.) Whether this situation will continue far into 2025 is unclear, as Ukraine has refused to renew its gas transit agreement with Gazprom. 

For now, it provides a near-perfect environment for Bitcoin mining. Given the existence of substantial power capacity at the MGRES power station and the access to free natural gas, the incentive to engage in Bitcoin mining is clear. Legislation was adopted in Transnistria in 2018 to provide a clear legal basis for the accelerated development of cryptocurrency mining. 

In 2019 there was substantial publicity for a state-backed mining enterprise zone named ‘Tehnopark OJSC’, which was intended to attract foreign miners, offering electricity at $0.043 per kWh. This is an extremely competitive rate; in 2024 Kazakhstan offered $0.073 per kWh and the US $0.127 per kWh, according to research by BestBrokers.com. While we do not have a reliable current figure, the fact that Transnistria receives free gas means that the figure is likely to be among the cheapest in the world. 

The current power consumption for one Bitcoin is 854,403 kWh according to BestBrokers.com (this figure has risen substantially in recent years thanks to changes in the mathematical basis of mining). Using the figures above, this implies an electricity cost per Bitcoin of $36,739 in Transnistria, compared to a Bitcoin price of circa $97,000. The corresponding figure for Kazakhstan is $62,371 and for the US it is $108,509. (Note that this US figure is a national average; miners are likely to operate in states with cheaper power.)

However, there has been very little further reporting since 2019 and the website is no longer live, although it was running as late as 2022. This does not mean that Bitcoin mining has ceased in Transnistria, but rather reflects the fact that international miners (bar Russians) did not flock to Tiraspol as hoped. As a result, and factoring in wartime conditions and the need for discretion, there is no need to court publicity. 

Reporting by the Moldovan NGO Anticoruptie indicates that the main mining players are Goweb International Limited and Tirastel GmbH.

Although it is claimed that Western investors are involved, the ‘investors’ are largely Russian and connected to Gazprom (to benefit from some of the gas grant that Gazprom provides to Transnistria).

Goweb International Limited is an interesting example. Anticoruptie reports that in January 2018 the BVI entity Goweb International Ltd spent $8.7 million on crypto mining equipment for delivery to Transnistria, routing the funds through ABLV Bank in Latvia. The following month, the US Treasury Financial Crimes Enforcement Network targeted ABLV on the basis of ‘institutionalized money laundering’ linked to ‘Azerbaijan, Russia, and Ukraine’. ABLV was also central to the 2016 ‘Laundromat’ scandal in which $1 billion was stolen from Moldovan banks.

Anticoruptie’s Cryptorepublic report goes on:

‘Goweb International Limited is an offshore company, managed by a group of businessmen from Russia, headed by Nikita Morozov, a company specialized in the production and marketing of mining equipment.

The company's official site shows that it has the largest mining capacity in Moldova, 40 MWh, equivalent to six or eight mining farms, which means a locality with 180,000–200,000 households.’

With the onset of Russia’s full-scale invasion of Ukraine in February 2022, the incentive for the Russian state to divert gas to Bitcoin mining has only increased as Moscow’s ability to market its gas internationally has shrunk. 

How the Bitcoins are Used

There is strong reason to believe that Bitcoin mining in shadow states, while carried out by private-sector actors, is done under the aegis of the Kremlin and helps to advance its goals. In the case of Transnistria, this nexus is quite explicit thanks to the direct involvement of Igor Chaika. He nominally serves as the Transnistrian representative of the Russian business organisation ‘Delovaya Rossiya’, but is known to function as the de facto FSB chief in the territory.

Chaika is the son of Yury Chaika, the former general prosecutor of Russia (2006–2020) who is closely associated with the abuse of the justice system by the Kremlin. The father currently serves as Putin’s envoy to Ramzan Kadyrov in Chechnya. Meanwhile his other son, Artem Chaika, is a businessman who serves as Kadyrov’s advisor for ‘humanitarian, social, and economic matters’ – presumably a role that leaves ample time to pursue other interests. 

The Balkan Investigative Reporting Network in Chisinau reported in 2018, during the early days of Bitcoin mining in the territory:

‘Chaika then told the Russian daily Kommersant that he wanted to move on with the bitcoin plans. “Now there are the prerequisites to move on,” he told the paper. “We agreed with the head of the Tiraspol executive that after the law came into force, the authorities would provide us with the infrastructure for the project. We will expect their proposals regarding the locations for the creation of mining farms – the ball is in their court,” he said.’

Wired reported that Chaika ‘has said he is ready to sink 400 million rubles into cryptocurrency mining [in Transnistria]’.

According to the rubric for Swiss SECO sanctions imposed on Igor Chaika in August 2024, he is responsible for funding the FSB’s destabilisation activities in Moldova proper. The Swiss sanctions state that he works closely with Dmitry Milyutin, the deputy head of the FSB responsible for Moldova. Moreover, Chaika is co-listed with Moldovan individuals whose role in destabilising the country is well documented, including Ilan Shor and Vladimir Plahotniuc, with the citation noting:

‘Igor Chaika is a Russian businessman responsible for funnelling money in support of the Russian Federal Security Service (FSB) projects aimed at destabilising the Republic of Moldova. He played the role of Russian “purse”, channelling money to FSB assets in the Republic of Moldova in order to bring the country under the control of the Kremlin…’

Given Chaika’s role in establishing Russia–Transnistria Bitcoin mining collaboration from 2018, it is highly likely that the resulting Bitcoins have been used to destabilise Moldova. 

The use of Bitcoin to support Kremlin subversion efforts goes far beyond Moldova. For example, a US loophole allows political donations under $200 to be anonymous. Huge sums can be sliced up automatically and moved electronically in small donations, with crypto adding an additional layer of anonymity. In 2020, for example, the Trump campaign received $378 million in this way, while the Biden campaign raised $406 million. There is simply no way for the campaigns themselves or the Federal Election Commission to tell where this combined sum of almost $800 million originated. 

In 2018 the US Department of Justice issued an indictment against Netyksho et al. The indictment alleges that they were members or associates of GRU (Russian military intelligence) Units 26165 (more widely known as ‘Fancy Bear’) and 74455 (‘Sandworm’). The indictment states that the group was responsible for DCLeaks and Guccifer 2.0:

‘Although the Conspirators caused transactions to be conducted in a variety of currencies, including U.S. dollars, they principally used bitcoin when purchasing servers, registering domains, and otherwise making payments in furtherance of hacking activity…

…The Conspirators funded the purchase of computer infrastructure for their hacking activity in part by “mining” bitcoin. Individuals and entities can mine bitcoin by allowing their computing power to be used to verify and record payments on the bitcoin public ledger, a service for which they are rewarded with freshly-minted bitcoin. The pool of bitcoin generated from the GRU’s mining activity was used, for example, to pay a Romanian company to register the domain dcleaks.com through a payment processing company located in the United States.’

Cryptocurrency is equally useful in evading sanctions and paying for embargoed military equipment. This is particularly the case when working with partners such as China and India, whose banks are vulnerable to secondary sanctions if they are uncovered. In September 2024 the FT published leaked material detailing the construction of an India–Russia ‘closed circuit’ trade route for sanctions evasion:

‘[Vadim] Poida outlined a five-stage plan to help Russia spend its rupees and establish a steady supply of dual-use components. Russia would set up a “closed payment system between Russian and Indian companies” beyond the oversight of western countries, “including by using digital financial assets”...’

The US Treasury Department demonstrated its intention to combat such arrangements in November 2024 when it sanctioned four named staff at VTB Shanghai and Sberbank New Delhi in what is likely to have been a shot across the bows of the broader community of Indian and Chinese banks. Such restrictions can be expected to increase the attractiveness of Bitcoin as a settlement means that does not put local banks at risk.

Given this analysis, the mining of Bitcoin in Russia’s ‘shadow territories’ offers a deniable, lucrative and effectively anonymous way to turn abundant power into money. That money can enrich well-connected Russian individuals and allow them to enjoy a prosperous life in places such as Dubai and Turkey. Equally – and almost certainly using the same mining operations – it presents several threats. These include the destabilisation of neighbouring states, projecting covert influence into Western democracies and facilitating sanctions evasion in concert with allies such as China and India. 

As the efforts of Ukraine’s allies to restrict the funding and resourcing of the Kremlin’s illegal war of aggression in Ukraine continue, combating this mining activity represents an important priority that calls for dedicated effort. This could include: cyber warfare measures; blockchain investigations focused on freshly minted coins to reveal those that are linked with Russia’s illegal activity; sanctions on digital asset platforms that facilitate mining, thus tarnishing all new coins they produce; and policies to choke off cheap energy to the ‘shadow territories’. Too often, the West lags behind Russian evasion strategies with its restrictive measures; when it comes to the vulnerabilities of Bitcoin mining, the evidence is clear. It is time to act.

© Neil Barnett, 2024, published by RUSI with permission of the author

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